Cost pressures outweigh fuel price gains at Lanka IOC in 1Q

Lanka IOC PLC (LIOC) reported a 34 percent decline in first quarter profits despite a sharp increase in revenue, as rising procurement costs linked to higher global crude oil prices eroded margins.

Net profit for the quarter ended June 30 fell to Rs. 1.53 billion from Rs. 2.32 billion a year earlier, while earnings per share declined to Rs. 2.87 from Rs. 4.36. Profit before tax dropped 29 percent to Rs. 2.07 billion.

Revenue, however, rose 47 percent year-on-year to Rs. 92.11 billion, driven by higher domestic fuel prices following an increase in global crude oil prices amid geopolitical tensions. The company’s cost of sales climbed even faster, rising 53 percent to Rs. 88.32 billion, resulting in gross profit falling 21 percent to Rs. 3.79 billion. Gross profit margin narrowed sharply to 4.1 percent from 7.7 percent a year earlier.

Operating profit declined 41 percent to Rs. 1.09 billion despite an 18 percent reduction in selling and distribution expenses, as higher administrative costs and weaker gross margins weighed on performance. 

Net finance income of Rs. 975 million, supported by the company’s sizeable investment portfolio, partially offset the weaker operating earnings.

Despite the weaker earnings, the company maintained a strong balance sheet. Short- and long-term investments stood at Rs. 53.1 billion, while cash and bank balances more than doubled to Rs. 3.95 billion. Total equity increased to Rs. 93.6 billion, with the asset-to-equity ratio remaining at a healthy 1.37 times.

Trade receivables increased 41 percent in line with higher sales volumes, while inventories fell 6 percent, indicating improved inventory management.